JP Morgan Chase ups bid to $10

JP Morgan Chase raised its offer for Bear Stearns, the beleaguered investment bank, to $10 a share Monday morning in an effort to pacify angry Bear shareholders. The sweetened offer of about $1 billion is intended to win over stockholders who vowed to fight the original fire-sale deal, struck only a week ago at the behest of the Federal Reserve and Treasury Department. Bear’s shares, which closed at $5.96 on Friday, rose to $11.44 (not sure why it's trading above $10, a new suitor is unlikely to come out of the woodwork). Under the new terms, each share of Bear Stearns common stock would be exchanged for 0.21753 shares of JP Morgan Chase stock, up from 0.05473 shares. In addition, JP Morgan Chase will buy 95 million newly issued shares of Bear Stearns common stock, or 39.5% of the outstanding Bear Stearns common stock after the issuance, at $10 a share (and essentially guaranteeing that existing shareholders are too diluted to prevent the sale).

In addition, Bear’s directors have indicated that they intend to vote their shares — worth almost 5% of Bear’s shares after the dilution of issuing shares for JP Morgan Chase. The deal is expected to be completed by April 8. While the initial agreement appeared to have defused the financial crisis of confidence that undid Bear, the initial terms of the deal — and the government’s controversial role in reaching them — drew criticism from those who say the takeover amounts to a government bailout of Bear, a firm at the center of the mortgage meltdown.

As part of the original deal, the Fed guaranteed to take on $30 billion of Bear’s most toxic assets. Under the revised deal, JP Morgan Chase will bear the first $1 billion of any losses associated with the Bear Stearns assets being financed and the Fed will finance the remaining $29 billion on a non-recourse basis to JP Morgan Chase.

Source: NYT